Wednesday June 10, 2009 - 10:46:06 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar falls as economy hopes cool risk aversion
* Dollar falls vs euro as risk aversion cools
* Euro edges up, shaking off weak French output data
* UK industrial output rise lifts sterling <GBP=>
By Harpreet Bhal
LONDON, June 10 (Reuters) - The dollar declined across the
board on Wednesday led by a retreat in risk aversion as stock
prices in Europe and Asia were lifted by investor optimism about
an improvement in the global economy.
The greenback's decline snapped gains made early in the week
on anticipation that positive data from the United States may
prompt the Federal Reserve to raise interest rates by year-end,
a view which was now being reassessed by the market.
Advancing stocks reflected renewed interest in riskier
assets, supporting higher yielding currencies including the
Australian and New Zealand currencies at the expense of the
"Risk appetite seems to be taking over now and with equities
moving higher and volatility coming down, all these issues are
working against the dollar," said Ian Stannard, senior FX
Strategist at BNP Paribas.
The FTSEurofirst 300 .FTEU3 was up 1.7 percent by 0934
GMT. In Asia, sentiment was buoyed by reports of
stronger-than-expected industrial output in China, which helped
to push Japan's Nikkei stocks average .N225 to an eight-month
Stannard said the dollar was also partly dragged down by the
view that central banks may diversify away from dollar reserves
after China said last week it would buy as much as $50 billion
in bonds issued by the International Monetary Fund (IMF).
"This is quite a clear signal that reserve managers are
looking at various alternatives to more traditional dollar
products so diversification is a theme which will continue to
haunt the dollar," Stannard said.
China's Vice Foreign Minister He Yafei said on Tuesday that
the largest holder of official currency reserves had no
intention of abandoning U.S. dollar assets, saying no one was
taking about "dumping the dollar" [ID:nBJC000331].
MIXED OUTPUT DATA
The euro <EUR=> edged up 0.2 percent against the dollar to
$1.4097, unfazed by a greater-than-expected fall in French
industrial output in April, which contracted 1.4 percent against
a fall of 0.2 percent predicted by economists [ID:nL9732978].
Despite the big fall, some analysts said that a further
weakness in French production would be less pronounced.
"Manufacturing production will continue to fall in the
second quarter but the rate of decline in industrial production
should be less marked, as the latest business survey in industry
shows a slight stabilisation in confidence in April-May," Calyon
said in a note to clients.
Other production figures were more optimistic, with data
showing Italian industrial output rose 1.1 percent in April on a
seasonally adjusted basis, marking the first increase after
nearly a year of monthly declines [nLA1008551].
Meanwhile the pound climbed 0.3 percent <GBP=> to $1.6371
after data showed UK industrial output rose unexpectedly by 0.3
percent in April for the first time since February 2008, a sign
that Britain's economy may be emerging from a recession.
Rising risk demand helped to push the Australian and New
Zealand dollars each up roughly 1 percent against the dollar.
Against a basket of currencies, the dollar fell 0.15 percent
to 79.727 .DXY, off the high of 81.466 hit on Monday after
positive jobs data from the U.S. heightened expectation that the
Fed would move to raise interest rates earlier than anticipated.
U.S rate futures trimmed such expectations and short-dated
Treasuries rallied on Tuesday, pulling yields down from recent
seven-month highs, after a solid auction of three-year notes.
But longer-dated issues struggled as the market awaited its
big test in the form of $19 billion in 10-year notes for sale on
Wednesday and $11 billion in 30-year bonds on Thursday.
Market participants awaited a two-day meeting of finance
ministers from the Group of Eight nations in Italy beginning on
Friday, although few in the market expected that foreign
exchange would take the spotlight at the gathering.
A French Finance Ministry source told Reuters the
participants would not discuss currency issues due to the
absence of central bankers at the meeting. [ID:nPAB007678]
(Additional reporting by Tamawa Desai; Editing by Toby Chopra)
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